Last month, Sally Yates, Deputy Attorney General for the United States Department of Justice, set forth a six point Memorandum that identified going forward how Justice would allocate its investigation resources to more effectively go after individuals responsible for corporate wrongdoing. This new directive was the result of senior attorneys from within the Justice department meeting and discussing the best ways it could leverage its resources to identify culpable individuals at all levels of corporate management -recognizing that corporations act through individuals. This really is not a new policy but merely the culmination or rather the continuation of the direction SEC Chair Mary Jo White has taken Justice. For example, see my earlier post on the SEC requiring admissions of wrongdoing in order to settle “egregious cases”. Set forth below is a summary of the Memorandum.

FIRST – To be eligible for any cooperation credit, corporations must identify all relevant facts and individuals responsible for the misconduct.

If a company wants to receive any cooperation credit, it must now disclose all relevant facts and actors. A corporation can no longer pick and choose to hide those individuals responsible based upon, position, status, or seniority. To receive cooperation credit, the company must learn all relevant information and turn this over to Justice otherwise cooperation will not be considered as a mitigating factor under USAM 9-28 et seq. Stated another way, the company must now be an active participant in its own internal investigation and must learn and discover the extent of its wrongdoings. This self-reporting is only the minimum threshold. The extent of any cooperation credit is awarded by Justice, it will still be based on the same factors that have traditionally been applied in making this determination – timeliness of cooperation, thoroughness, diligence, speed of internal investigation and whether the cooperation was proactive or not.

SECOND – Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.

Justice has identified three benefits of making a concerted effort to go after individuals at the beginning of its investigation. First, corporations only act by individuals so by building its case against these individuals Justice believes that this will ferret out the full extent of corporate misconduct. Second, by focusing on lower level individuals at the inception, Justice this will increase the likelihood that individuals with inside knowledge of the wrongdoing will cooperate with the investigation and turn over useful information against the individuals higher up the corporate hierarchy. Third and finally, Justice hopes this approach will maximize the likelihood that any outcome will include charges not only against the corporation but also the responsible individuals as well.

THIRD – Both civil and criminal corporate investigations should be in routine communication with one another.

While this may appear obvious, it has not always been the case that both the civil and criminal sides of Justice work together and communicate. When there is a criminal and civil investigation ongoing at the same time, this is known as a parallel investigation. While both sides may be investigating the same transactions or events, one may learn facts that may be helpful to the other in its investigation. With different burdens of proof and charges, what may not be enough for a criminal charge may satisfy a civil charge and likewise a civil investigation may reveal facts that would be helpful to a criminal charge. By having a directive that both sides need to cooperate and share information in a meaningful manner, Justice hopes that this will lead to more successful conclusions to both civil and criminal matters.

FOURTH – No corporate resolution will provide protection from civil or criminal liability for any individuals absent extraordinary circumstances.

Individuals must be held accountable for their actions and therefore Justice may not agree to any settlement with the corporation that includes an agreement to dismiss charges or grants immunity to an individual. This is self-explanatory and just highlights once again that individuals are the main thrust of any investigation going forward.

FIFTH – Corporate cases should not be resolved without a clear plan to resolve related individual cases.

Once again, individuals are the main thrust of any investigation going forward. Going forward, if a corporate case is going to be resolved, the corporate authorization or prosecution memorandum must also include a discussion of potentially liable individuals. If the decision at the end of the investigation is not to bring an action against the individuals responsible for the misconduct, those reasons must be memorialized and approved by the US Attorney or Assistant US Attorney who handled the investigation of the case.

SIXTH – Considerations to bring suit against the individual must not be made solely on the ability to pay.

Unfortunately, it is now an edict of Justice that determinations to go forward against individuals will not be governed by the ability to pay. Factors that have always been considered are the seriousness of the misconduct, quality of evidence obtained, ability to obtain a judgment, past misconduct and federal resources and priorities. Justice stated that by holding the individual accountable in view of the above factors will minimize fraud and in the long run minimize losses to the public through fiscal fraud.

What is the take away here? Individual employees need to understand that if they do not take efforts to protect themselves they can be squarely in the cross-hairs for corporate fraud. It may not be enough to merely report the fraud to your superior, especially if your superior is part of the fraud to begin with. Justice has shifted the paradigm and it is now in the interest of the Corporation to come forward and complete its own internal investigation. As an employee, your future may not align with your employer during this investigation, especially if it was your information that triggered the investigation. It will be interesting to see how the Justice Department implements these new directives against the backdrop of the VW fraud emission scandal.

The attorneys at Danziger Shapiro & Leavitt have represented many individuals before the SEC, FINRA, federal forfeiture proceedings and other investigative bodies and can provide sound tactical guidance if you find yourself in these uncharted waters. Please feel free to contact Douglas Leavitt at Danziger Shapiro and Leavitt for insight into this and other issues that concern you.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

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